GLOBAL - The International Accounting Standards Board could be on the verge of scaling back the scope of its Phase I project to address pensions accounting.

IASB member Philippe Danjou told delegates at a public forum - hosted by Germany's national accounting standard setter DRSC in Frankfurt earlier this week- his personal opinion on the IASB's recently published due process discussion paper was: "We should not go too far with this project. In the beginning, there was a tendency to rethink everything and to get into questions [about] everything and to try to incorporate very modern views in this project. We may need more modest improvements [in order to make progress]."

The IASB unveiled a discussion paper in March of this proposing, among other changes to pensions accounting requirements, a new definition of contribution-based pension plans.

IASB hopes the new plan classification will form the basis for improving the accounting for what it has dubbed "troublesome" cash-balance-type plans.

IASB has divided its work on pensions into two phases. After completion of Phase I, which should conclude with an improved version of IAS 19, its existing standard, in place by 2011, the board has said it hopes to work with the US' Financial Accounting Standards Board (FASB) to mount a full-scale review of pensions accounting.

The project has already run into controversy over plans to change the accounting for the UK.'s career-average plans from the projected unit credit method to the new fair value model but it now hangs in the balance as the United States mulls a move to IFRS reporting.

During debate at an earlier April joint IASB-FASB meeting in London, IASB research director Wayne Upton called for the board to consider scaling back its ambitions for Phase I.

"I'm personally not convinced that the definitional integrity that we were seeking was appropriate. But we will see how the comment letters go," Upton said.

"We would recommend that any work on Phase 2 of the project be suspended and those resources allocated elsewhere," he added.

During meeting discussions, Upton said he had identified two likely impediments to completing the project: benefit promise definitions and scope and, separately, the issue of measurement.

He said he also expected to see "significant pushback" on the board's proposals to shift career-average plans to the new contribution-based classification.

The discussion paper has proposed three approaches to the issue of financial statement presentation: all changes in the pension liability in profit or loss, costs of service in profit or loss and all other changes outside profit or loss, or costs of service, interest cost and interest on plan assets in profit or loss with all other changes outside profit or loss.

Indicating the board's early leanings at the June Frankfurt meeting, IASB project manager Jenny Lee said: "It really does seem that the board is clearly divided. Some of the board members that prefer everything in P&L tend to be board members that are the most outspoken at the board. So that might give the impression that it's a done deal but it isn't."

The issue of presentation is also controversial as the board's final say on the question will directly impact the level of earnings that a business is able to reflect in its accounts.

At the same forum, Lee confirmed more detail on the contentious issue of the involvement of the FASB in the IASB's wider push to reform its pensions standard, International Accounting Standard 19.

When asked by IPE to explain links between the pensions project and the US standard setter's work on financial statement presentation, Lee said: "[B]y the time we get to exposure draft stage we are going to have to think about how things will be allocated…but for the discussion paper, we are running them as separate [projects]."

Lee was initially reluctant to address questions about the FASB's links with IASB.

Asked to comment on remarks made by FASB chairman Bob Herz suggesting his board and the IASB had carved up the project's Phase II work between them, Lee said: "I'm not part of the FSP team. And knowing how quickly things change in my own project, I would not dare comment."

She added "Bob Herz is not a staff member." IASB has in the past refused to set out details of its contacts with the US FASB.

This time around, she explained: "Certainly senior directors and board members may well express their own view on how things are going and they may well express a view on strategic movements but it would really not be a case of a member of staff or a board member saying where a project is going to go until it has been balloted because anything may happen."

And in an admission that will surprise many, the pensions team member added: "I would suggest that you [ask] a member of staff on the financial statement presentation project because I am not clued up enough about FSP to answer."

Pressed on whether this meant the pensions project in London is run separately from the largely US-based effort on financial statement presentation, Lee added:

"What we have decided for financial statement presentation and what is in the discussion paper are clearly interrelated. What we do not want to do is to have the pensions project held back by lack of progress on the financial statements project which has been going on for quite a long time."

"What we did not want to do is to find out that what we were going to do on FSP before we decided what we are going to do on pensions. At the momen,t the financial statements project is talking about where things go in the profit or loss statement, [while] the pensions project is talking about whether something goes in the profit or loss statement or outside the profit or loss statement."

Members of the IASB board only ever speak on a personal capacity at any public meeting, and are therefore never speaking in an official position as the IASB, as Board positions are only ever set out in the standards they set.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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